Burberry Shares Plunge 9% as Luxury Fashion Retailer Warns of Global Slowdown

London – Burberry, the British luxury fashion retailer, witnessed a 9% drop in shares on Thursday after issuing a warning that its full-year operating profit might land at the lower end of forecasts. The company also expressed concerns about potentially missing its annual revenue projections for low double-digit growth. Here are the key highlights from Burberry’s recent fiscal second-quarter earnings report:

Profit Warning and Revenue Concerns

– Burberry cautioned that a global slowdown in luxury spending could impact its full-year operating profit, which is expected to be at the lower end of forecasts.

– The company also raised concerns about meeting its annual revenue projections for low double-digit growth.

Sales Growth Slowdown

– In the fiscal second quarter, comparable store sales growth decelerated sharply to 1%, a significant drop from the 18% recorded in the previous quarter.

– The slowdown in sales momentum was particularly noted in China, a crucial market for luxury goods.

Financial Performance

– Burberry reported a half-year operating profit of £223 million ($276.64 million), reflecting a 15% decline from the previous year.

– CEO Jonathan Akeroyd acknowledged the challenging macroeconomic environment but emphasized the company’s progress on its strategic aims.

Strategic Initiatives

– Akeroyd highlighted the launch of the Winter 23 collection in September, the first designed by Daniel Lee, as part of their ongoing efforts to build momentum around a new creative vision.

– Despite economic challenges, Burberry remains confident in its strategy to position itself as the modern British luxury brand, with a commitment to achieving medium and long-term targets.

Industry-Wide Challenges

– The global slowdown in luxury demand has impacted companies worldwide, with economic uncertainty and higher inflation affecting consumer spending on luxury items.

– Other major players in the luxury goods sector, such as LVMH and Richemont, have reported sales slowdowns and warned of weaker growth.

Specific Challenges in the U.K. and the Americas

– In addition to global challenges, Burberry highlighted the unique challenge it faces in the U.K. due to the government’s decision to end VAT-free shopping for international visitors.

– The Americas posed a specific problem for Burberry in the quarter, with comparable store sales falling by 10%.

Outlook and Call for Reconsideration

– Burberry expressed uncertainty about achieving revenue guidance for FY24 if the current weaker demand persists.

– The company, along with other British retailers, called on the government to reconsider the decision on VAT-free shopping, labeling it a “tourism tax.”

Market Commentary

– The Americas emerged as Burberry’s worst-performing region, prompting a focus on improvement by CEO Jonathan Akeroyd.

– Analysts noted that Burberry’s challenges align with broader industry trends, and the company must protect and invest in its brand while awaiting an improvement in the market backdrop.

As Burberry grapples with both global and specific challenges, its ability to navigate the evolving luxury retail landscape will be closely watched by investors and industry observers.